M/S. GEORGE WILLIAMSON (ASSAM) LTD. versus COMMISSIONER OF INCOME TAX, GAUHATI

Citation: [2005] SUPP. 3 S.C.R. 303 · Decided: 19-09-2005 · Supreme Court of India · Bench: AR. LAKSHMANAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

MIS. GEORGE WILLIAMSON (ASSAM) LTD. 
v. 
COMMISSIONER OF INCOME TAX, GAUHATI 
SEPTEMBER 19, 2005 
[DR. AR. LAKSHMANAN AND P.P. NAOLEKAR, JJ.] 
Companies (Profits) SurtaxAct, 1964-Second schedule, Rule J(iii) and 
Rule 2 Explanation-Surtax-statutory deduction-Computation of capital of 
A 
B 
a company, for the purpose of surtax assessment-Appellant company acquiring C 
the Indian undertakings of UK registered companies in accordance with a 
Scheme of Arrangement-RBI approving the price with the stipulation that 
there should not be any depletion in the net assets on the date of acquisition 
from that given in the balance sheets of previous year-Value of the net assets 
maintained exceeded the price approved by RBI-The differential amount D 
shown by the company in its balance sheet as a capital reserve as part of 
other reserve-ITA T. holding in favour of appellant, held that such capital 
reserve formed part of the capital of appellant company under Rule I (iii)-
ITAT also recorded a specific finding that the said reserve was not brought 
into existence by creating or increasing the value of any book asset and so not 
hit by explanation 1 to rule 2-0n appeal, the High Court reversed the order E 
of the !TAT-Allowing the appeal, this court restored the order of the ITAT. 
The appellant company was formed for taking over the sterling tea 
companies operating in India which were registered in UK. The acquisition 
was done in accordance with a Scheme of Arrangement under sections 
391and394 of the Companies Act and was granted approval by the High F 
Courts. According to the scheme, all the properties, rights, powers and 
liabilities of sterling companies were transferred to and vested in the 
appellant company. The Reserve Bank of India permitted the appellant 
company to pay the aggregate lumpsum consideration at Rs. 490 lakhs 
with a direction that there should not be any depletion in the net assets as G 
on the actual date of transfer of business from what was given in the 
balance sheets of those companies as on 31.12.1976. The value of the net 
assets which was to be maintained by the appellant company exceeded the 
amount of consideration by Rs. 1,43,89,055 which was shown in the 
303 
H 
304 
SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R. 
A appellant company's balance sheet as a Capital Reserve as part of "other 
reserve". The question was whether the said capital reserve was covered 
by Explanation 1 to Rule 2 of the Second Schedule to the Companies 
(Profits) Surtax Act 1964 and could not be treated as the capital of the 
company for the purposes of Surtax assessment. The Appellate Tribunal 
holding in favour of the appellant, gave a finding that the said reserve 
B was not brought into existence by creating or increasing the value of any 
book asset and was not therefore covered by the said explanation and has 
to be treated as part of capital for the purposes of surtax. The High Court, 
reversed the order of the tribunal and held that the said reserve was hit 
by explanation 1 to rule 2 of the Act. Appellant contended that explanation 
C 1 has no application as the assets taken over by the company were all real 
and tangible and not book assets and the said reserve was not created by 
the appellant company but arose due to statutory requirements in 
following the directions of RBI. 
Allowing the appeal, the Court 
D 
HELD: The High Court has completely failed to appreciate the true 
meaning and real effect in law of Explanation I to Rule 2 of the Second 
Schedule to the Companies (Profits) Surtax Act 1964. The High Court has 
grossly erred in stating that the appellant had received benefits in 
computation of income tax on account of assets taken over by the appellant 
E from other tea companies and that, therefore, the reserve in question could 
not be treated as a component of the capital for the purposes of surtax 
assessment. Such a new case was neither at all advanced by the Revenue 
before the High Court, nor could such a case at all be considered by the 
High Court in as much as it did not at all arise out of the order by the 
p 
Appellate Tribunal. The provisions of the Business (Profits) Tax Act, 1947 
which were interpreted by this Court in Standard Vacuum Oil Co. are 
virtually identical to the provisions of the Companies (Profits) Surtax Act, 
1964 and the said judgment directly and squarely covered the instant case. 
The High Court has committed a patent error in completely disregarding 
that judgm

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